The loss of pace and extent may be caused by the number of transactions, but the number of transactions, i.e., the activity, may be high or low, that is, price may roll over because there's a great deal of activity but it results in churning because demand can't break through supply, or it may roll over because sellers can't find buyers. Therefore, don't assume that price is rolling over because it's running out of steam. You can pick up on the activity level by how quickly price changes and how quickly it prints.
Making of a method
- Thread starter game
- Start date
Between the two, i.e. momentum lost due to churning and momentum lost due to a lack of trades in the zone, which is more indicative of a Reversal? (keeping all other factors constant)
My thoughts:
Rolling because of churn favors reversal.
Edit: But if I was a buyer who rides a wave and see's that no one else is buying, would I not be more inclined to sell than if I saw that others are buying even now. So not really sure of my earlier answer.
Momentum lost due to a dryup of interest is a more sure indicator of a reversal simply because no one is interested in maintaining the momentum, much less renewing it. Churning is a more even match, and buyers will have to capitulate before a reversal entry will clear the zone where you no longer have to worry about buyers giving it another try.
You've seen this before, where price hesitates at the crest of the move before plunging or drops a bit at the crest then shudders a bit then tries to rally, fails, tries again, fails, at which point it may succeed at rallying or begin a descent. Whether a short here succeeds or not will depend on how determined buyers are. If buying interest is suddenly withdrawn, you're good. But if buyers keep coming back, you won't be in a position to go make a sandwich.
If you can't solve a problem, then there is an easier problem you can solve: find it
- George Polya
If trading is a study of force, and if the best position is at the top of a downwave and at the bottom of an upwave, then the determination of force at the turning points is the key.
Things straightforward:
Identifying a wave
Identifying the loss of pace when wave halts
Things fairly straightforward:
Identifying previous S/R zones that are likely to exert their influence
The pace, time and extent of past waves and the general context
The character of the market
Things unknown:
Correctly reading pressure within the turning point zone
The plan going forward is to:
1) Immerse within and become intimate with the turning point zone. This will be the primary intent of my observation.
2) Compiling data on the character of the NQ.
Some initial ideas on what data to collect are:
Number of big swings in a day (where a swing is defined as a directional movement of x plus points without a ret greater than 50%)
Extent of these swings
Time taken from start to end (start and end eyeballed)
Avg speed of the Swing
Number of major ret's on the way (where a ret is defined as a reaction of more than 25%)
- George Polya
If trading is a study of force, and if the best position is at the top of a downwave and at the bottom of an upwave, then the determination of force at the turning points is the key.
Things straightforward:
Identifying a wave
Identifying the loss of pace when wave halts
Things fairly straightforward:
Identifying previous S/R zones that are likely to exert their influence
The pace, time and extent of past waves and the general context
The character of the market
Things unknown:
Correctly reading pressure within the turning point zone
The plan going forward is to:
1) Immerse within and become intimate with the turning point zone. This will be the primary intent of my observation.
2) Compiling data on the character of the NQ.
Some initial ideas on what data to collect are:
Number of big swings in a day (where a swing is defined as a directional movement of x plus points without a ret greater than 50%)
Extent of these swings
Time taken from start to end (start and end eyeballed)
Avg speed of the Swing
Number of major ret's on the way (where a ret is defined as a reaction of more than 25%)
1: Downmove bounces off anticipated S level.
2: No upside exploration leads to the hinge. Have to be neutral here.
3: The downmove from the hinge is sharp and there is no chance to get in. But this move is brought back and finds R at the apex level of 107.37. Price further compresses in a narrow range from 28 t 37. The break above R sends a signal that the LOLR is up. There are opps to get in on a ret on the 5s.
4: The long would be stopped out as price turns and falls fast. There was no clear indication of this pressure change - and no opp to get in on the short.
5: The downmove rallies past 50% level and finds R at the apex again. It also finds S at previous level. Indications that there is less chance of downside exploration.So we are back in compression mode. Bias can be neutral here and there is no need to jump at making preemptive and shaky LOLR conclusions.
7: The convincing break of R signals that compression has been resolved. There is a ret opp to go long on the 5s. The R level can be used for a low risk trade.
8,9: The first substantial rally after the reversal wave. A short or long here would go nowhere as a hinge is formed again and this is a signal to stay neutral as the break can come out in any direction.
10: The break from hinge. Long on the ret.
11:Long taken here on the ret would be exited once price crosses the apex level.
12: Finds R at the previous level. The flat action is saying be neutral.
13: Crosses old apex level and this is a signal that LOLR is down. Short in anticipation of behavior at the mp zone.
14: The strength of the rally off mp zone is sending a message. Short would be exited here and a long entered as SAR if I was quick enough. But all the flat action above would have discouraged taking the long SAR as well.
15: Bounces off prior high. Distance from high to S shown at mp if about 32 cents. Since LOLR is down after the bounce, a short could be taken in anticipation of testing the mp zone below again.
16: The S zone below is never tested and the short would have to be exited. The LOLR has definitely changed with this show of buying pressure.
17: The break on the upside fizzles out but the bounce off S here is expected because of all the prior action required to break through this level. The dip back to this level is not a good sign for longs. The LOLR would be neural here.
18: The first clear sign that buyers are no longer willing to support at these levels. The old defense of large number of trades at this level is negated by the equally large number of trades at the R level above as well.
19: A very good opp for a low risk short.
20: If short, I would be watching this level to see the quality of the rally at the old value level from the hinge apex. Since the rally is weak, this would be an opp to add to short.
Give or take:
Long at 3: stopped out small loss
Long at 7: good gain
Long at 10: stopped out small loss
Short at 13: stopped out small loss
Long at 14: SAR not sure if I would have the wits to take this
Short at 15: exited as price drifts up and sideways for a while
Short at 18 or 19: Big gain
Short at 20: Big gain
If I practice making such hindsight narratives consistent, perhaps I can get to a point where I automatically think this way in real time. Instead of fixed rules, can I base trading on clear thinking at all times?
http://www.sierrachart.com/image.php?l=1376891608432.png
2: No upside exploration leads to the hinge. Have to be neutral here.
3: The downmove from the hinge is sharp and there is no chance to get in. But this move is brought back and finds R at the apex level of 107.37. Price further compresses in a narrow range from 28 t 37. The break above R sends a signal that the LOLR is up. There are opps to get in on a ret on the 5s.
4: The long would be stopped out as price turns and falls fast. There was no clear indication of this pressure change - and no opp to get in on the short.
5: The downmove rallies past 50% level and finds R at the apex again. It also finds S at previous level. Indications that there is less chance of downside exploration.So we are back in compression mode. Bias can be neutral here and there is no need to jump at making preemptive and shaky LOLR conclusions.
7: The convincing break of R signals that compression has been resolved. There is a ret opp to go long on the 5s. The R level can be used for a low risk trade.
8,9: The first substantial rally after the reversal wave. A short or long here would go nowhere as a hinge is formed again and this is a signal to stay neutral as the break can come out in any direction.
10: The break from hinge. Long on the ret.
11:Long taken here on the ret would be exited once price crosses the apex level.
12: Finds R at the previous level. The flat action is saying be neutral.
13: Crosses old apex level and this is a signal that LOLR is down. Short in anticipation of behavior at the mp zone.
14: The strength of the rally off mp zone is sending a message. Short would be exited here and a long entered as SAR if I was quick enough. But all the flat action above would have discouraged taking the long SAR as well.
15: Bounces off prior high. Distance from high to S shown at mp if about 32 cents. Since LOLR is down after the bounce, a short could be taken in anticipation of testing the mp zone below again.
16: The S zone below is never tested and the short would have to be exited. The LOLR has definitely changed with this show of buying pressure.
17: The break on the upside fizzles out but the bounce off S here is expected because of all the prior action required to break through this level. The dip back to this level is not a good sign for longs. The LOLR would be neural here.
18: The first clear sign that buyers are no longer willing to support at these levels. The old defense of large number of trades at this level is negated by the equally large number of trades at the R level above as well.
19: A very good opp for a low risk short.
20: If short, I would be watching this level to see the quality of the rally at the old value level from the hinge apex. Since the rally is weak, this would be an opp to add to short.
Give or take:
Long at 3: stopped out small loss
Long at 7: good gain
Long at 10: stopped out small loss
Short at 13: stopped out small loss
Long at 14: SAR not sure if I would have the wits to take this
Short at 15: exited as price drifts up and sideways for a while
Short at 18 or 19: Big gain
Short at 20: Big gain
If I practice making such hindsight narratives consistent, perhaps I can get to a point where I automatically think this way in real time. Instead of fixed rules, can I base trading on clear thinking at all times?
http://www.sierrachart.com/image.php?l=1376891608432.png
CL Aug 19
Prep:
Price is right below Range top. The climb from the bottom on the 8th has been reducing pace. The line since Friday's close has been down.
S: 106.73 (from PM)
S: 106.60 (low zone of 15th and 16th)
R: 108.76 (Range top and high from the 1st)
R: 107.81 (LH zone from 18th)
R: 107.33 (from PM)
R: 107.18 (SH from PM)
R: 106.98 (SH and retested level from PM)
0801 Sold down to 1st S level. Neutral here. See how price acts at this level to determine LOLR.
0804/10 The rally off S has turned down again and price is close to the HL level of 6.60. Since this is a previous S level and since a HL is in the making if price reverses back up, I can place a buy stop between the SH and the current reaction low. The 6.60 level will be my immediate S.
0805/05 Price easily breaks past SH and is now away from the previous value zone. Unlikely that it will immediately return back there.
0806/05 It is back down to the mp level of the upswing. The 0805/20 and 0805/30 volume bars were very small in comparison the big volume from the upswing. Was this an indication of a lack of immediate buying interest during the ret? The previous SH level of 6.71 can be another last line of defense for the long.
0808 The mp level is holding for now. Price getting compressed right above it.
0809 Upside break from congestion is rejected and it now breaks down. See if the 6.75 mp level holds.
0811 The mp level held and buyers came in to take price just below the ant R zone of 6.98.
0811/45 Pace faltering momentarily. Scale some out here. Upswing from bottom is 43 pts now. The next defense level is mp of the current leg of the upswing at 86.
0814/55 A DT has been created and pace is now flat. With R right above, the LOLR is neutral for now. Exit all.
0816/25 Breaks past R and is now at the SH R zone from PM at 7.18.
0818/50 Clear R being shown here although a HH was just made. Still neutral.
0822/45 After moving sideways just below the high, price breaks. But this break does not follow through and is now turning down. This is a sign that upside attempts may be over for now and that the LOLR is now down with all these trades acting as R here.
0825 Looks all set to fall. But there hasn't been any rally to go short yet.
0829/20 Here is the ret that goes up close to the high. Sell stop can be set here with the High as defense.
0834 The downwave is brought back and looks like there will be some more trading in this zone for now.
0840 Strong pressure comes in again and this time the short is exited as the LOLR is clearly shifting to the long side due to someone being interested in buying as soon as price appears to Reverse. Neutral for now.
0843/05 The surge that created new high is brought back down just as fast. LOLR has again shifted down. But since there are a lot of trades in this zone, short can be taken once price breaks down from SL of 7.09 and then retraces back up.
0843/45 Here comes the breach of SL
0844/10 The ret is shallow and there is no immediate buying off SL level. So a sell stop is positioned.
0848/55 The downmove loses some pace at the expected level of 6.93, which is where a lot of the previous sideways action took place. It is also right at S (previous R broken on the way up).
0850/40 The strength from S level retraces all the way back to entry and breaches R level. Exit and neutral.
0853/05 Missed the upswing. The breach back above R set me to neutral. However, this breach then retraced a bit and was brought back up again by buyers. This should have shifted my LOLR to up. The previous R level would now have been used as a S level. The anticipation would be a resumption of uptrend.
0857/35 Breaks past anticipated R level of 7.33 from PM.
http://www.sierrachart.com/image.php?l=137696317350.png
Prep:
Price is right below Range top. The climb from the bottom on the 8th has been reducing pace. The line since Friday's close has been down.
S: 106.73 (from PM)
S: 106.60 (low zone of 15th and 16th)
R: 108.76 (Range top and high from the 1st)
R: 107.81 (LH zone from 18th)
R: 107.33 (from PM)
R: 107.18 (SH from PM)
R: 106.98 (SH and retested level from PM)
0801 Sold down to 1st S level. Neutral here. See how price acts at this level to determine LOLR.
0804/10 The rally off S has turned down again and price is close to the HL level of 6.60. Since this is a previous S level and since a HL is in the making if price reverses back up, I can place a buy stop between the SH and the current reaction low. The 6.60 level will be my immediate S.
0805/05 Price easily breaks past SH and is now away from the previous value zone. Unlikely that it will immediately return back there.
0806/05 It is back down to the mp level of the upswing. The 0805/20 and 0805/30 volume bars were very small in comparison the big volume from the upswing. Was this an indication of a lack of immediate buying interest during the ret? The previous SH level of 6.71 can be another last line of defense for the long.
0808 The mp level is holding for now. Price getting compressed right above it.
0809 Upside break from congestion is rejected and it now breaks down. See if the 6.75 mp level holds.
0811 The mp level held and buyers came in to take price just below the ant R zone of 6.98.
0811/45 Pace faltering momentarily. Scale some out here. Upswing from bottom is 43 pts now. The next defense level is mp of the current leg of the upswing at 86.
0814/55 A DT has been created and pace is now flat. With R right above, the LOLR is neutral for now. Exit all.
0816/25 Breaks past R and is now at the SH R zone from PM at 7.18.
0818/50 Clear R being shown here although a HH was just made. Still neutral.
0822/45 After moving sideways just below the high, price breaks. But this break does not follow through and is now turning down. This is a sign that upside attempts may be over for now and that the LOLR is now down with all these trades acting as R here.
0825 Looks all set to fall. But there hasn't been any rally to go short yet.
0829/20 Here is the ret that goes up close to the high. Sell stop can be set here with the High as defense.
0834 The downwave is brought back and looks like there will be some more trading in this zone for now.
0840 Strong pressure comes in again and this time the short is exited as the LOLR is clearly shifting to the long side due to someone being interested in buying as soon as price appears to Reverse. Neutral for now.
0843/05 The surge that created new high is brought back down just as fast. LOLR has again shifted down. But since there are a lot of trades in this zone, short can be taken once price breaks down from SL of 7.09 and then retraces back up.
0843/45 Here comes the breach of SL
0844/10 The ret is shallow and there is no immediate buying off SL level. So a sell stop is positioned.
0848/55 The downmove loses some pace at the expected level of 6.93, which is where a lot of the previous sideways action took place. It is also right at S (previous R broken on the way up).
0850/40 The strength from S level retraces all the way back to entry and breaches R level. Exit and neutral.
0853/05 Missed the upswing. The breach back above R set me to neutral. However, this breach then retraced a bit and was brought back up again by buyers. This should have shifted my LOLR to up. The previous R level would now have been used as a S level. The anticipation would be a resumption of uptrend.
0857/35 Breaks past anticipated R level of 7.33 from PM.
http://www.sierrachart.com/image.php?l=137696317350.png
I started to observe CL also. I have not traded it, and I do not currently intend to do so. I am using it as an additional opportunity to observe and learn. I look forward to your posts, as always.
Could you suggest some questions I should consider in order to choose a contract to trade? Compiling character stats on a specific market takes time so your response gives me a reason to pause and reconsider.
My current reasoning is:
CL is volatile with a lot of daily swings
It is liquid enough for my current scale and anticipated scale in the near future.